The Tax Policy Center's recent analysis of the presidential tax plans has received a considerable amount of attention in the press. While much of the focus has been on how much or how little each plan benefits "middle-class" taxpayers, little attention has been paid to how each plan affects the overall distribution of the nation's tax burden.
On this account, the plans are vastly different. Under the McCain plan, since every taxpayer gets a tax cut, the overall distribution of the federal tax burden remains roughly the same as it is today. Under the Obama plan, because some taxpayers get a tax cut and others get a substantial tax increase, the overall distribution of the federal tax burden changes quite considerably.
In short, the Obama plan would redistribute more than $131 billion per year from the top 1 percent of taxpayers to all other taxpayers. In 2009, for example, Tax Policy Center figures show that after the income-shifting in the Obama plan, the top 1 percent of taxpayers would pay a greater share of the total federal tax burden than the bottom 80 percent of Americans combined. In other words, 1.13 million Americans would pay more in all federal taxes than 128 million of their fellow citizens combined.
These figures do not include the impact of Obama's proposal to apply Social Security payroll taxes on incomes above $250,000. According to Tax Policy Center estimates, this plan would increase the tax burden of top earners by an additional $40 billion in 2009 alone and more than $629 billion over the next ten years. By itself, the $40 billion tax hike is twice as much as all the federal taxes paid by people in the bottom quintile combined.
To put the Obama plan in context, it is important to understand how divided America's tax burden already is between a large group of Americans who pay little or nothing and a shrinking group of upper-income taxpayers who shoulder the lion's share of the burden. For example:
- In 1999, about 30 million tax filers had no income tax liability after taking advantage of their credits and deductions. By 2006, the number of non-payers had grown to nearly 44 million, one-third of all income tax filers.
- According to the Congressional Budget Office, in 2005, the top 20 percent of households paid 86.3 percent of income taxes while the bottom 80 percent paid a collective 13.7 percent of the income tax burden. The top 1 percent of households paid 38.8 percent of income taxes.
- Looking at all federal taxes, in 1990, the bottom 80 percent of households paid 42 percent of the tax burden while the top 1 percent of households paid about 16 percent. By 2005, the share of all federal taxes paid by the bottom 80 percent of households had fallen to 31 percent, while the share paid by the wealthiest households had risen to nearly 28 percent.
- A recent Tax Foundation study found that in 2004, the nation's tax and spending policies redistributed more than $1 trillion in income from the top 40 percent of American households to the bottom 60 percent of households.